Oh No! He's Talking About Accounting Again
A while back, I wrote a post about the Accounting Principle of Revenue Recognition and Undelivered Sales. I know you probably don’t remember that post, or you may not have been here for it or you just may not have read it because you think accounting is boring (I know which of you think that and I am keeping a list). I believe it’s time for a little refresher especially since we have all gone through the transition to Capture.
So, here’s the question….When does a sale become a sale? Well that answer may depend on your perspective. You may believe that it’s a sale when the patient says yes, I want those hearing aids, gives you the deposit and you enter the order in Capture. While that is a “sale” as measured against targets, that’s not when it actually becomes a sale financially for the company. According to the standards that govern accounting, I don’t get to record a sale in our financial statements until the patient receives the hearing aids. I know that probably seems confusing, so I will explain further (some of you are tempted to tune me out right about now, but don’t make me add your name to the list).
If hearing aids are sitting on a shelf somewhere collecting dust, not only are they not helping to improve the hearing health of our patients, they are not showing as a recognized sale on our financial statements and are sitting in the inventory account. Sometimes, we have paid for those hearing aids before they are actually delivered to the patient. This means they are tying up the cash flow because we may not be able to receive the final payment until they have been delivered. And, if cash is tied up, we can’t use it for other purchases like toilet paper or toner.
I know you are reading this and saying, I deliver them as soon as I receive them from IC. That’s great! But, how does Finance know they’ve been delivered? I realize that Carolyn knows everything, but this is one thing she doesn’t automatically. We rely on Capture to let us know. So, you’ve delivered the aids to the patient, did you complete the transaction in Capture and show them as delivered?
As an example, let’s say you purchased something from Amazon (I know that I just lost a few more of you who were reminded that you need to purchase something on Amazon…my list is growing longer). So, they charged your credit card and the product is delivered to your home. But, you decide that you need to return the item, they issue the return authorization and you ship it back. You’re done right? You’ve got your money back right? Wrong. First Amazon must receive the item and mark it in their system as received before they will issue that credit to your credit card. You don’t get to recognize your refund until they have marked the transaction as complete. And that may stop you from buying something else while your funds are tied up.
We used to send out a report to you weekly advising if you had undelivered hearing aids. But, in the transition to Capture, not all of the Sycle delivery dates transferred over because of how Sycle “recorded” those dates. So, that report is currently not available. The Capture team is working on this issue. In the meantime, please make sure that you are delivering in Capture every time you physically deliver to the patient.
For those of you who stuck with me through this whole post, I appreciate it and your names will not be on the list. I sometimes mention stories about myself, my kids, grandkids or my dog Ike in these posts. So here are a few trivia questions to see if you pay attention to what I write and/or say.
1) Ike likes to watch TV, what have been his favorite genre of TV shows in the past?
A) Westerns
B) Reality shows
C) Sitcoms
D) Crime dramas
E) Ike doesn’t watch TV
2) What famous person has Michael worked for in the past? No hints on this one.
3) Michael’s stories are:
A) True
B) Complete fiction
C) Maybe a little true, but just can't be totally true
Persons who work in the following areas are not eligible to answer these questions:
Directors, Finance, Operations, Payroll, IT or Patty in Upland.
I will post the answers after a few days.